The Pensions Bill has received Royal Assent, providing the legal framework for personal accounts and compulsory employer pension contributions.
First introduced in December 2007, the act states that from 2012 employers must auto-enrol employees, aged over 21 and earning above £5,000, into a workplace pension scheme or the new personal accounts scheme, and make a contribution of 3% to those who don’t opt out.
It also contains the framework for setting up Personal Accounts to provide a means of pensions savings for millions of people who do not have access to a workplace pension fund.
James Purnell, secretary of state for work and pensions, welcomed the Act, saying it will fundamentally change the pensions landscape for millions of people as every person in some form of employment will now have a chance to save for retirement.
He said: “As people are living longer and have higher expectations from their retirement, the need for us to take action was clear. Auto-enrolment and personal accounts deliver on the key recommendations from the Pension Commission’s report on helping millions of people to save for later life.”
The act means employers face paying contributions for millions of workers who are not currently enrolled in workplace pensions.It is estimated that around 7 million people in the UK are not currently saving enough to the generate the pension income they will need in retirement.
Marc Hommel, partner and pension leader at PricewaterhouseCoopers (PWC) said: “This is a powerful catalyst for UK employers to review their pension strategy, take control of their obligations and implement durable, appropriate pensions arrangements.”
He added that the biggest impact will be felt by industries such as retail and leisure, which rely on temporary workers, experience high staff turnover and have the highest numbers of employees without a pension.